Great Trades

Great stock trades based on fundamentals and technical analysis.

Friday, June 26, 2009


Confluence of Resistance -- VIX Bounce Coming?

After Tuesday's small NYMO change day signaled a big move day coming, the big move came on Thursday, as the S&P 500 moved sharply off its lower Bollinger Band and powered up toward last week's high. Now, the market is near a key resistance area, and how it reacts to that resistance will likely determine the direction of the next big move.

If the S&P 500 can break through the resistance in the area of last week's 927 high, it should make a push toward the 956 high of the week prior. Earlier in this rally, such an up move would have been a given considering next week is month end, quarter end, and a holiday-shortened week. However, there are indications that a market shift is taking place...

Here's a blog post indicating that the VIX closing below the lower Bollinger Band has been a pretty reliable sell signal, and sometimes significant market turning point:

Not only did the VIX close below the lower Bollinger Band yesterday, but it did so today as well, with the VIX closing down 1.6% even though the S&P 500 closed down (as you can see from the chart, they normally are inversely correlated). This chart of the VIX and SPX shows this double violation of the lower Bollinger Band, as well as the S&P 500's bounce off the lower Bollinger Band earlier this week:

You can also see in this chart that the 20-day moving average (gold line) sits right at the 927 area, and the PAR SAR Stop and Reverse indicator (little pink boxes above the SPX) will also be in that area early next week. This confluence of resistance means it's important for the market to power through through that 927 area next week in order to have the month-end/quarter-end/holiday rally one would expect. If it fails to break though that area and rolls over instead, a break of this week's low would confirm a head and shoulders topping pattern and would also feature a bearish 13/34 EMA cross (red and blue lines).

Given the current setup, a low-risk, potentially high-reward strategy might be to short any strength in the S&P 500 early next week, and stop and reverse to long on a breakout of the 927 resistance area. That would allow one to profit from whichever way the market breaks.

The double VIX lower Bollinger Band penetration argues for a market break lower, while the "Golden Cross" bullish 50/200 day moving average crossover this week and the quarter-end/holiday week next week argue for a break higher. The key is to be ready for both and profit either way.

Comments: Post a Comment

<< Home


December 2005   January 2006   February 2006   March 2006   April 2006   May 2006   July 2006   August 2006   October 2006   November 2006   December 2006   January 2007   February 2007   March 2007   April 2007   May 2007   June 2007   August 2007   October 2007   November 2007   May 2008   September 2008   October 2008   January 2009   February 2009   March 2009   April 2009   May 2009   June 2009   July 2009   August 2009   September 2009   October 2009   November 2009   December 2009   March 2010   May 2010   June 2010  

Great Trades Home    Email GreatTrades

Great Investments Blog     Great Investment Articles Blog

Disclaimer: Great Trades may have a position in all or some of the stocks discussed in this blog, but is not paid by any company to promote their stock. Great Trades contains opinions, none of which constitute a recommendation that any particular security, transaction, or investment strategy is suitable for any specific person. Great Trades does not provide personalized investment advice.

Seeking Alpha Certified

Enter your email address to subscribe:

Delivered by FeedBurner

This page is powered by Blogger. Isn't yours?